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- Title
Price discrimination with loss averse consumers.
- Authors
Hahn, Jong-Hee; Kim, Jinwoo; Kim, Sang-Hyun; Lee, Jihong
- Abstract
This paper proposes a theory of price discrimination based on consumer loss aversion. A seller offers a menu of bundles before a consumer learns his willingness to pay, and the consumer experiences gain-loss utility with reference to his prior (rational) expectations about contingent consumption. With binary consumer types, the seller finds it optimal to abandon screening under an intermediate range of loss aversion if the low willingness-to-pay consumer is sufficiently likely. We also identify sufficient conditions under which partial or full pooling dominates screening with a continuum of types. Our predictions are consistent with several observed practices of price discrimination.
- Subjects
PRICE discrimination; LOSS aversion; CONSUMER behavior; RESTRAINT of trade; UTILITY theory
- Publication
Economic Theory, 2018, Vol 65, Issue 3, p681
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-017-1035-2